Coal-fired plant spiking some suburban electric bills

Michael Hawthorne, Tribune reporter

When Naperville and Batavia bought shares of a new coal-fired power plant, Linda Sommer was one of the few people in the two suburbs who challenged the idea that it would guarantee cheap, reliable electricity for years to come.

Seven years later, the number of residents, business leaders and elected officials questioning the deal is growing. Instead of the promised savings, both suburbs are moving this month to boost electricity rates to cover higher-than-expected costs to operate the Prairie State Energy Campus and help pay off municipal bonds that bankrolled its construction.

In Batavia, the financial situation is so dire that officials are considering a sales tax increase in addition to charging residents and businesses more for electricity.

Gambling that Prairie State would insulate them from volatile electricity prices, dozens of communities across the Midwest locked themselves into 28-year contracts to purchase power from a company formed by Peabody Energy, the nation's largest coal company. But a combination of skyrocketing construction costs, lower natural gas prices and other factors has erased the competitive advantage predicted in 2007.

To make matters worse, mechanical problems have reduced the output of the $5 billion coal plant during the past year and a half, forcing municipal electricity agencies to buy energy on the open market even as they continue making payments on construction debt.

"Every time we asked questions when they were thinking about signing up, we were told the city's responsibility was to deliver reliable energy at the lowest cost possible," said Sommer, a community activist who has lived in Batavia since 1982. "Look how that turned out. We're stuck with a power plant that is unreliable and outrageously expensive."

Officials say they still think Prairie State will save money in the long run. But based on information presented at recent public meetings, it could take years for any benefits to materialize.

Naperville is holding a public forum on the proposed rate hikes Thursday at its Municipal Center in advance of a City Council vote later this month. Batavia is planning a rate vote in March after a series of council meetings that outlined how the decision to invest in the coal plant has squeezed city finances.

Initial reaction to the proposals has ranged from indignation to resignation. Some residents and elected officials are urging city attorneys to investigate whether communities can get out of the Prairie State contracts.

"We seem almost powerless," said Robert Fieseler, a Naperville city councilman. "The only way we change that is to be willing to walk."

In both communities, there have been discussions about trying to force a better deal by banding together with three other suburbs with a stake in the coal plant: Geneva, St. Charles and Winnetka. Some suggest that Illinois Attorney General Lisa Madigan should launch an investigation or state lawmakers should step in to protect the communities.

"I don't like how they are trying to cover up their mess by putting this all on ratepayers and businesses," said Sylvia Keppel, who has lived in Batavia for 15 years and recently became aware of issues with the coal plant. "We are in deep trouble. Somebody needs to be held accountable."

Some residents are particularly angry that they will see higher electricity bills while Peabody retains just a 5 percent stake in its fossil fuel showcase. The company ended up shifting most of the costs for Prairie State — and nearly all of the risks — to towns as small as 1,200 people in Illinois, Indiana, Kentucky, Michigan, Missouri, Ohio, Virginia and West Virginia.

Peabody did not respond to requests for comment. In its 2013 annual report, the power plant's management company described critics as "cynics" and called Prairie State a "reliable, low-cost and stable source of electric power that is produced in a safe and environmentally responsible manner."

The Tribune reported in September that many cities with a stake in Prairie State are paying far more for electricity than neighboring communities that brokered deals made possible by low-cost natural gas. At the time, officials in Naperville and Batavia said they had no plans to raise rates beyond already planned increases.

Now Naperville officials plan to increase residential rates by 6 percent or 7 percent during each of the next two years rather than 2 percent annually. Batavia's electricity rate would jump 16 percent, or 10 percent with a half-cent increase in the sales tax, depending on which option city leaders approve.

"This isn't good news, but at least we are willing to fess up and address it," said Grant Wehrli, a Naperville city councilman who voted for the Prairie State deal in 2007. "I believe with a 6 percent increase we're still going to beat ComEd on the residential market."

Officials in Geneva, St. Charles and Winnetka said that for now they have no plans to raise electric rates, though ratepayers in Geneva and St. Charles are paying "adjustment" charges tacked on to monthly electricity bills.

Questions remain about whether the rate hikes and tax increases proposed in Naperville and Batavia are only a temporary fix.

During a public meeting last week, Naperville City Manager Doug Krieger said the suburb's electric department faces a $14 million deficit, largely because of Prairie State. Raising rates by 7 percent during each of the next two years would erase the deficit, Krieger said, but it wouldn't be enough to replenish a $11.2 million reserve fund drained to pay for the coal plant.

Batavia, which signed up for more electricity from Prairie State than it ended up needing, lost $1.2 million last year selling excess power and will be selling at a loss for years to come, according to a report prepared by city officials.

Officials suggested the financial beating won't stop until natural gas prices increase enough to drive up the cost of electricity for other customers.

"We do believe, at some point, the market prices will increase and be above that of Prairie State, making Prairie State much more cost-compatible," said Gary Holm, Batavia's director of public works.

A top official at the Illinois Municipal Electric Agency, or IMEA, an association of 33 cities that includes Naperville, St. Charles and Winnetka, said the coal plant always has been seen as a long-term investment.

"We simply believe that the level of cost of natural gas seen over the recent months and years is not sustainable," Phillip "Doc" Mueller, IMEA's senior vice president for government affairs, wrote in an email response to questions. "That is why we have hedged our future risk with resources that are fueled by sources other than natural gas."

While residents have packed recent public meetings about the proposed rate hikes in Naperville and Batavia, the decisions to help build a coal plant drew little public debate seven years ago. Elected officials agreed to help finance the project even as private investors abandoned it and scuttled plans for dozens of other coal plants nationwide.

By the time construction began in late 2007, Peabody had raised the price tag for Prairie State from $2 billion to $2.9 billion. Ballooning costs for trained workers, steel and other materials drove the price to $5 billion by the time it began operating in 2012.

Rules planned by President Barack Obama to combat climate change by limiting carbon dioxide emissions from coal-fired power plants could make Prairie State even more expensive to operate. At full capacity, the plant is projected to churn more than 13 million tons of greenhouse gases into the atmosphere every year.

"There is no evidence the price of power from Prairie State is going to go down," said David Schlissel, an analyst for the Institute for Energy Economic and Financial Analysis, a nonprofit group dedicated to reducing the nation's reliance on coal and other nonrenewable sources of electricity.

"The real question is whether these cost increases being passed on to communities are ever going to stop."